Tuesday’s Bullish Trading
United Healthcare (UNH) sees noteworthy action for a second day. As noted in the midday report Monday, November 55 calls on the managed healthcare company saw interest Monday. Shares slipped 36 cents to $56.17 Tuesday and much of the focus turned to November 60 calls. More than 10,230 traded, including an apparent morning buyer of 8,000 contracts for 33 cents per contract. Open interest was 7,305 and so the activity appears to be new positioning. Total options volume was about 15,000 calls and 3,800 puts. It’s not clear what was driving the activity, as shares have not performed well lately and there has been no news on the stock. The activity might be a play on the 11/6 Presidential elections and the potential impact on health insurance companies.
Bullish trading was also seen in Petrobras (PBR), New York Times (NYT), and Tesla Motors (TSLA).
Tuesday’s Bearish Trading
NXP Semiconductors (NXPI) saw relative strength Tuesday ahead of its earnings report. The chipmaker is due to report earnings the morning of October 25. Shares were up 90 cents to $22.62 ahead of the results, yet the overall options order flow seemed somewhat bearish Tuesday. About 6,800 puts and 700 calls traded on NXPI which is 8X the daily average. One investor was paying 75 cents per contract for up to 5000 November 20 puts on NXPI Tuesday, according to a source on the exchange floor. At the end of the day, 5,430 contracts changed hands against 201 in open interest. Investors might have been buying the downside puts today to help hedge the risk of a negative post-earnings move in NXPI Thursday.
Bearish trading was also seen in US Steel (X), Meritor (MOTR), and Gamestop (GME).
Index Recap
CBOE Volatility Index (.VIX) moved higher amid increasing levels of activity in the options market Tuesday. The market’s so-called “fear gauge” rose 2.16 points to 18.78 and to its best levels since September 4. Meanwhile, 8.2 million calls and 8.5 million puts have traded across the exchanges (with 15 minutes still remaining to trade). The put-to-call ratio, of 1.04, is on pace for its highest readings since mid-July. Increasing put activity along with a higher VIX are often a sign that risk perceptions are on the rise and investors are increasingly willing to pay premium to hedge stock portfolios. VIX has now rallied 25 percent in just three days.
Analyzing the ETF Market
The activity in the exchange-traded funds marketplace reflects the increasing bearish sentiment as well. Total share volume across all ETFs rose to more than 1 billion Tuesday, which compares to average daily volume of about 830 million, according to Trade Alert data. Options volume was about 6.4 million contracts, which compares to a daily average of less than 5 million. Interestingly, fifteen of the sixteen most active options were options on the SPDR 500 Trust (SPY). Eight of the ten most actives were put options on SPY. Shares finished $1.99 to $141.42 and November 140 puts saw the most volume. 141,946 contracts changed hands. SPY is a fund that holds the same names as the S&P 500. The high volume suggests that some investors might have been buying puts on the ETF to hedge stock portfolios for fear of further losses in the equity markets.
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